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Possibly a stupid question: what happens if the American economy (or whatever the index fund you invest in reflects) doesn't grow for a sustained period of time

Possibly a stupid question: what happens if the American economy (or whatever the index fund you invest in reflects) doesn't grow for a sustained period of time? The article kind of addresses this, but doesn't clarify if FIRE advocates have a proper rebuttal (I get the feeling that there isn't one).

ahelwer 8y ago
If it happens then you cry into your giant pile of savings & financial responsibility then go back to work. There are no certainties in life.
VBprogrammer 8y ago
In an economic downturn having a few hundred thousand pounds / dollars sitting in the bank they will have more options than your average person. The economy would have to be completely screwy for there not to be a way of making money from capital. Even if the currency goes into hyper inflation you are much more likely to be able to get it out into a safer currency when you have enough of it lying around.
- rwmj 8y ago
  Brexit says hi! Fortunately I can invest in overseas stocks and bonds to defray some of the problems, but don't count on "having a few hundred thousand" in the bank as being worth much if your country decides to leap off a cliff.
  - IanCal 8y ago
    Diversified investments mean you will see much less of a drop (or even a rise in local currency). But let's think through the case that stuff in the UK drops by 50% and you're entirely invested within the UK. Instead of having "a few hundred thousand" you'd have somewhere north of £100000 (depending on what you mean by 'a few'). That sounds to me like it'd give you some security, or help a move to another country.
  - benj111 8y ago
    But surely Brexit is an argument for building a nest egg. The Boris Johnsons and Jacob Reece-Moggs of the world aren't worried about the financial aspects of Brexit, because they have a 'nest egg'.
jplayer01 8y ago
What period of time? 5 years? 10 years? 20? 50? Long-term investment accepts that downturns happen. The worst thing you can do in that situation is divest when prices are low, since historically the stock market has always recovered and continued growth. If growth were to stop entirely, then sure, you'd have to rethink your strategy, but it's incredibly unlikely and simply not relevant. You could, for example, invest in a global index fund. Or, worst-case, keep working for longer than you expected.
ctchocula 8y ago
I'm not sure about the FIRE crowd, but the crowd at Bogleheads.org advocates a three-fund portfolio with the equity side being composed of a 60% allocation to US equity, 40% ex-US equity (exact ratio up to the individual to decide). This diversification tries to address the risk you brought up of being over-concentrated in your country's stock were something like Japan's stagnation from 1990-present to happen to the US.
millstone 8y ago
If you plan to FIRE, you can focus on increasing your income and/or decreasing your spending. Of the two, decreasing your spending is more powerful: 1. You save more. 2. You can live on less should your income drop (for example, you retire). This is born out mathematically: a permanent $1k drop in spending is way more powerful than a $1k increase in income over your earning years. Cultivating a lean lifestyle seems like a good general skill.
IanCal 8y ago
Then you'll be in a safer position than the vast majority of people, and it pushes back your date. If this happens, that worldwide there's no growth for the next 15 years, think about the two paths * FIRE path, I have significant savings, but can't retire young. * Non-FIRE, my plan to retire at 70 is behind now and I'm worried about being able to retire then.
- dragonwriter 8y ago
  Alternatively: FIRE path: I deferred enjoyment but now my significant savings are wiped out in the economic collapse. Non-FIRE path: I enjoyed my life, and my insignificant savings are wiped out in the economic collapse. (Aside from economic collapses, there's is a similar potential that comes in the form of unexpected early death.)
  - IanCal 8y ago
    But your savings would not be "wiped out". They'd just be lower. You're making a big divide between the two paths though which really should not exist. If you are not enjoying your life, the fire plans won't work for you because they'll leave you with the same money to live on in retirement. There's a reason the common advice is to build the life you want then save for it. > Aside from economic collapses, there's is a similar potential that comes in the form of unexpected early death.) Which is unlikely but: 1. Retiring early gives me a greater chance of not working until I die. 2. If I die and am living with no spare savings and at the upper end of what I earn, my wife and son will struggle more without me. With significant savings they'll be financially secure. To be a bit shorter, my favourite response to "but what if I die young" is "but what if you don't?". Really, sacrificing income where your utility curve plateaus means you're giving up not much now for more later. And the realistic worst cases are mitigated significantly by having savings or investments. I'd rather risk not having some stuff I don't really care about now and dying at 40, than risk dying at 70 still working but with a few more trinkets around me.
    - dragonwriter 8y ago
      > But your savings would not be "wiped out" Having savings wiped out is a thing that actually happens in sufficiently significant economic collapses and FIRE is not proof against it. > Really, sacrificing income where your utility curve plateaus Empirically, the point at which utility derived from additional income becomes insignificant is vastly beyond the income level most people will ever reach. It's even beyond the point most tech workers will be able to reach, and even moreso what they will reach before any point where retirement would be “early”.

ahelwer 8y ago

If it happens then you cry into your giant pile of savings & financial responsibility then go back to work. There are no certainties in life.

VBprogrammer 8y ago

In an economic downturn having a few hundred thousand pounds / dollars sitting in the bank they will have more options than your average person. The economy would have to be completely screwy for there not to be a way of making money from capital. Even if the currency goes into hyper inflation you are much more likely to be able to get it out into a safer currency when you have enough of it lying around.

rwmj 8y ago
Brexit says hi! Fortunately I can invest in overseas stocks and bonds to defray some of the problems, but don't count on "having a few hundred thousand" in the bank as being worth much if your country decides to leap off a cliff.
- IanCal 8y ago
  Diversified investments mean you will see much less of a drop (or even a rise in local currency). But let's think through the case that stuff in the UK drops by 50% and you're entirely invested within the UK. Instead of having "a few hundred thousand" you'd have somewhere north of £100000 (depending on what you mean by 'a few'). That sounds to me like it'd give you some security, or help a move to another country.
- benj111 8y ago
  But surely Brexit is an argument for building a nest egg. The Boris Johnsons and Jacob Reece-Moggs of the world aren't worried about the financial aspects of Brexit, because they have a 'nest egg'.

jplayer01 8y ago

What period of time? 5 years? 10 years? 20? 50? Long-term investment accepts that downturns happen. The worst thing you can do in that situation is divest when prices are low, since historically the stock market has always recovered and continued growth. If growth were to stop entirely, then sure, you'd have to rethink your strategy, but it's incredibly unlikely and simply not relevant. You could, for example, invest in a global index fund. Or, worst-case, keep working for longer than you expected.

ctchocula 8y ago

I'm not sure about the FIRE crowd, but the crowd at Bogleheads.org advocates a three-fund portfolio with the equity side being composed of a 60% allocation to US equity, 40% ex-US equity (exact ratio up to the individual to decide). This diversification tries to address the risk you brought up of being over-concentrated in your country's stock were something like Japan's stagnation from 1990-present to happen to the US.

millstone 8y ago

If you plan to FIRE, you can focus on increasing your income and/or decreasing your spending. Of the two, decreasing your spending is more powerful: 1. You save more. 2. You can live on less should your income drop (for example, you retire). This is born out mathematically: a permanent $1k drop in spending is way more powerful than a $1k increase in income over your earning years. Cultivating a lean lifestyle seems like a good general skill.

IanCal 8y ago

Then you'll be in a safer position than the vast majority of people, and it pushes back your date. If this happens, that worldwide there's no growth for the next 15 years, think about the two paths * FIRE path, I have significant savings, but can't retire young. * Non-FIRE, my plan to retire at 70 is behind now and I'm worried about being able to retire then.

dragonwriter 8y ago
Alternatively: FIRE path: I deferred enjoyment but now my significant savings are wiped out in the economic collapse. Non-FIRE path: I enjoyed my life, and my insignificant savings are wiped out in the economic collapse. (Aside from economic collapses, there's is a similar potential that comes in the form of unexpected early death.)
- IanCal 8y ago
  But your savings would not be "wiped out". They'd just be lower. You're making a big divide between the two paths though which really should not exist. If you are not enjoying your life, the fire plans won't work for you because they'll leave you with the same money to live on in retirement. There's a reason the common advice is to build the life you want then save for it. > Aside from economic collapses, there's is a similar potential that comes in the form of unexpected early death.) Which is unlikely but: 1. Retiring early gives me a greater chance of not working until I die. 2. If I die and am living with no spare savings and at the upper end of what I earn, my wife and son will struggle more without me. With significant savings they'll be financially secure. To be a bit shorter, my favourite response to "but what if I die young" is "but what if you don't?". Really, sacrificing income where your utility curve plateaus means you're giving up not much now for more later. And the realistic worst cases are mitigated significantly by having savings or investments. I'd rather risk not having some stuff I don't really care about now and dying at 40, than risk dying at 70 still working but with a few more trinkets around me.
  - dragonwriter 8y ago
    > But your savings would not be "wiped out" Having savings wiped out is a thing that actually happens in sufficiently significant economic collapses and FIRE is not proof against it. > Really, sacrificing income where your utility curve plateaus Empirically, the point at which utility derived from additional income becomes insignificant is vastly beyond the income level most people will ever reach. It's even beyond the point most tech workers will be able to reach, and even moreso what they will reach before any point where retirement would be “early”.